of 750 experts worldwide who have the somewhat dubious honor of contributing to the World Economic Forum’s annual Global Risk Report, you might expect John Scott, chief risk officer for Zurich Global Corporate, to be full of doom and gloom.
If he is, it doesn’t come across in his upbeat, affable demeanor. But Scott does spend a lot of time thinking about incidents that might spell the end of humanity.
We are only several minutes into conversation when he says, “Clearly a major pandemic of some sort could be the thing that wipes out the human race at some point.” While that seems a distant possibility – indeed, the spread of infectious disease didn’t make it into the Global Risks Report’s top 10 in terms of likelihood this year – Scott follows up with a reminder not to be complacent.
“It is a fact that we’ve had pandemics – the last major one being swine flu. But fortunately, and this is difficult to say, it wasn’t as virulent as it could have been,” he says. “Many, many people died, but it wasn’t as virulent or as fatal as Ebola, and Ebola really caught people’s attention because the chance of dying is quite high. However, you do have to be very close to someone to catch it, which raises issues around urbanization. If outbreaks occur in the countryside, when they get to cities it will be very, very easy for them to spread. So global disease outbreak has been at the forefront of people’s minds because of Ebola.”
Societal risks on the rise
The interesting thing about the Global Risks Report is that the survey is based on perception. So while the global risks and trends don’t change all that much from year to year, people’s perceptions are very much influenced by recent events.
As a result, the top risk in terms of likelihood, and also the fourth in terms of impact, was large-scale involuntary migration. Significantly, societal risks (of which the spread of infectious diseases is also one) were four of the top risks in terms of impact and two in terms of likelihood in the 2016 report.
“In recent years, there has been more focus on geopolitical and societal risks and their links with social instability, leading to the concept of the disempowered citizen,” Scott says. “Think about the migration happening in Europe, and look around globally at the rise of nationalist and more extremist politicians who appeal to people who are disenfranchised, or disconnected with political and other elites.
“In the case of migration,” he continues, “some people look around and say, ‘No, I don’t want that in my street,’ calling into question the broader values of human rights, free trade and globalization. The trust between electorates and politicians is under severe strain.”
Scott references the annual Trust Barometer published by marketing and branding agency Edelman, concluding: “It’s pretty clear that people don’t trust even the companies they work for, let alone politicians or governments. The disempowered citizen and social instability, driven by issues like geopolitical instability and leading to mass migration, is a big challenge.”
The importance of risk management
By their very nature, the truly global challenges that Scott considers are unwieldy and tested by a lack of effective global governance, with many elements regulated on a national level.
But one thing the Global Risks Report does is create a framework in which all stakeholders can build a dialogue, and which brings companies, politicians and decision-makers together in discussion.
“How can you think about this in a strategic sense? How do the big issues about climate, cyber risk and geopolitics impact the business model? It might impact it many different ways,” Scott says. “Your customers’ needs may be changing, or your global footprint might change, or your product, if it’s created in different parts of the world, might be affected in terms of supply chain interruption, so we use tools like scenario planning to see how things play out. With supply chain resilience, we look at how you might be impacted. Or what do you do if all your assets in a country are expropriated due to political change? Companies need to think through all of these risks when looking at managing business models.”
And for Scott, this is where the insurance industry has great value to bring to society, because it knows how to price risk and also holds a lot of data about risks. “So that means we can not only offer people the ability to transfer risks from their balance sheets to someone else’s, sharing the risks of the few among the many, but also support and influence better management of risks. This is a very valuable social construct.”
Risk management expertise might extend to disaster mitigation, or building community resilience, or helping people in emerging economies who don’t buy insurance protect themselves by building flood protection or having an evacuation plan, he points out.
But it might also involve thinking about space weather or space debris, which is typically something brokers and their clients don’t consider. “If something crashes into a GPS satellite,” Scott explains, “it makes a difference to our world, because we rely on GPS not only for geolocation, but for the accurate time synchronization of computers.”
In that sense, having the knowledge that someone, somewhere is thinking through the most obvious and obscure doomsday scenarios that threaten mankind makes the world somehow feel like a more comfortable place.